Hong Kong’s cosmetics, toiletries and skincare market is dominated by imports, as there is very little domestic manufacturing. China was Hong Kong’s largest supplier of the US$958 million market in 2008. France, Japan, and the U.S. were the other major suppliers. Hong Kong imported US$179 million worth of cosmetics, toiletries, and skincare products from the U.S. in 2008. Imports of cosmetics, toiletries, and skincare products will likely grow at between 8 and 11% in 2009 and 2010 given continued robust spending from the Mainland Chinese visitors.
Hong Kong is an important launch pad for marketing cosmetics and skincare products into the Mainland Chinese market; it acts as a showcase for the millions of Chinese tourists (17 million in 2008) that annually visit Hong Kong to shop. There are tremendous opportunities for U.S. cosmetics and skincare products’ suppliers to export to Hong Kong as local retailers and distributors are eager to increase the variety of products that they can offer to the Mainland Chinese tourists.
There are no import duties on cosmetics, toiletry and skincare products in Hong Kong and registration is not required for cosmetic products. The market is very competitive, with the top ten brands accounting for about 70% of the market. Skincare products generate the lion’s share of Hong Kong beauty business, followed by make-up and nail products, and perfumes and fragrances. Appointing a local distributor and working closely with that distributor to promote the brand, adapting the products to include whitening ingredients, packaging, and product sizes to suit local tastes are important to remain competitive. U.S. cosmetic and toiletry suppliers are, however, known for being innovative in product development, and for producing high quality, safe products at competitive prices.
In 2008, the size of the cosmetics and toiletries market in Hong Kong was estimated at US$958million. The 29 million tourists that visited Hong Kong in 2008 (of which 17 million were from Mainland China) augmented demand in the local Hong Kong market of 6.9 million people. According to the Hong Kong Tourism Board, about 80% of the Mainland Chinese tourists who visited Hong Kong “went shopping” and cosmetic and skincare products were among their top 3 shopping purchases. The owner of an international Italian fashion and cosmetics brand commented at their Hong Kong flagship store opening, its first in Asia, that Hong Kong “ …increasingly represents a launch pad into the Chinese market; it creates the trends and acts as a showcase for this market.”
While China has reduced import duties on cosmetics and skincare products thereby reducing the retail price differential between Hong Kong and China, Mainland Chinese tourists are still attracted to buying these products in Hong Kong rather than in China. According to industry sources, the perceived authenticity and reliability of the products in Hong Kong stores outweighs the price consideration. Apart from import tariffs that the Mainland imposes on cosmetics, there are also VAT and product registration costs which do not exist in Hong Kong. The number of Mainland Chinese tourists in Hong Kong is expected to grow to 22 million by 2011. U.S. cosmetic products enjoy an excellent reputation among Chinese consumers.
In 2004 Sulwhasoo, a premium South Korean skincare brand chose Hong Kong as the first overseas market over the U.S, Japan, and France. Sulwhasoo cited Hong Kong consumers’ high receptivity to new products and the open regulatory environment as reasons for choosing Hong Kong. As such, a proliferation of international cosmetics and skincare products’ brands have established distribution and retail outlets in Hong Kong and have used Hong Kong as their first market to launch their products in Asia. This comprehensive listing of international brands in Hong Kong coupled with its zero tariffs on imported cosmetics, perfumes and toiletries have made it a major cosmetics shopping destination for the tourists in the region.
The mega and luxury casino resorts in neighboring Macau (an hour ferry ride from Hong Kong,) that have opened in the past three years feature facilities such as medical spas and skincare treatment centers for the many casino and MICE visitors. Macau received an estimated 30 million visitors in 2008 (compared with a similar number for Hong Kong), an increase of 11% compared with the previous year. Demand for high quality skincare, aesthetic medical, and body treatment products and spa management services will increase in Macau. Many Hong Kong companies and cosmetic product retailers also distribute their products to Macau or operate retail stores there.
Spending by Mainland Chinese tourists will continue to fuel demand for cosmetics, toiletries and skincare products which will remain strong in 2009 and 2010 even though the Hong Kong economy is expected to contract between two and three per cent in 2009, and grow at an average annual rate of 3.5% between 2010 and 2013. The Chinese renminbi has appreciated about 10% against the Hong Kong dollar during the past two years. For the Mainland Chinese tourists, purchasing cosmetics and skincare products in Hong Kong has become even more attractive as the same amount of renminbi goes a longer way for their purchases. Amid the economic downturn in Hong Kong, local consumers are more cautious in their spending but are unlikely to reduce their expenditures on cosmetics and skincare products substantially. Many consumers in Hong Kong would prefer to reduce spending on other products and services such as manicures/pedicures or massage and spa services than on skincare products or cosmetics.
Hong Kong is also an important entrepot for re-exporting to China. Many U.S. companies sell their cosmetics and skincare products to China through their Hong Kong distributors, as the latter are familiar with the complex product registration procedures in China and the logistics of importing cosmetic products into China. Importers of cosmetic products in China must apply to the Ministry of Health for a cosmetics import license and the regulations governing the issue of this license are very strict, particularly the use of raw materials derived from cows. Many Hong Kong distributors have also opened skincare, hair salons and spas in China and are therefore familiar with selling skincare and cosmetic products to these institutions.
By Swee-keng Cheong